Zimbabwe’s currency reality check puts plaster on deep wound

HARARE: Zimbabwe’s decision to scrap a peg between its quasicurrency bond notes and the US dollar brings a welcome end to a failing monetary policy, but it is not the solution to a deeper crisis, economists said.

The Reserve Bank of Zimbabwe (RBZ) on Wednesday said it would carry out a ‘managed float’ of the surrogate bond notes and electronic dollars, effectively creating a national currency for the first time since adopting the US dollar in 2009. The bond notes and electronic dollars will be known as a separate currency called RTGS dollars. Banks were closed for a public holiday on Thursday.

Street traders said there had yet to be any change on the black market, where one US dollar still costs around 3.5 bond notes and US$4 in electronic funds.

“I think if the RBZ manages to keep liquidity low the rate will definitely stabilise,” a trader said.

Due to a desperate lack of hard currency, the bond notes and notional dollars in the electronic banking system have been steadily dropping in value on the street, worsening the hardships of ordinary Zimbabweans as inflation soared.

Many foreign traders have stopped accepting bond notes as legal tender, leaving businesses such as millers, brewers and miners hamstrung. A more realistic approach will be welcomed by investors and foreign donors but it will not reverse the currency crisis, experts said. The RBZ only has enough foreign exchange for two weeks of imports.

“The fact that officials finally came to their senses and ditched the notion that Zimbabwe’s quasi currency was at par with the US dollar, is comforting. With consumer prices soaring, significant amounts of multilateral debt arrears, virtually no foreign reserves, and confidence at rock-bottom, Zimbabwe’s problems are still far from over – nor is the road ahead any clearer,” said Jee-A Van Der Linde, analyst at NKC African Economics. — Reuters